Health and Precautionary Savings in the

This paper studies a model in which pollution by firms raises the risk of poor old-age health in agents. The health risk is converted into consumption risk inducing a precautionary saving response. The model generates a pollution-growth-health nexus in which pollution and capital accumulation reinforce each other. Interestingly, pollution speeds growth, but hurts long-run welfare unless the economy is sufficiently poor. This result appears consistent with the experience of some newly-industrializing economies which are choosing to pollute and grow. Some suggestive empirical evidence from China, supporting the precautionary savings effect of pollution, is also provided